Events in Italy are turning serious. President Giorgio Napolitano has warned of “widespread social tension and unrest” in 2014 as the Long Slump drags on.
Those living on the margins are being drawn into “indiscriminate and violent protest, a sterile lurch towards total opposition”.
His latest speech is a veritable Jeremiad. Thousands of companies are on the “brink of collapse”. Great masses of the working people are on the dole or at risk of losing their jobs. Very high rates of youth unemployment (41pc) are leading to dangerous alienation.
“The recession is still biting hard, and there is a pervasive sense that it will be difficult to escape, to find a way back to full growth,” he said.
Now why might that be? Might it not have something to do with the central overriding fact that Italy has a currency overvalued by 20pc or more within EMU: that it is trapped in a 1930s fixed-exchange system run a 1930s central bank that is standing idly by (for political reasons) as M3 growth stalls, credit contracts, and deflation looms?
Without going as far as to warn that the Italian state itself is at risk, he said the growing threat from insurrectional forces must be confronted. The law must be upheld strictly. The country must continue to be governed. “Europe is watching us,” he said.
Mr Napolitano is alarmed, and so he should be. The “forconi” pitchfork revolt has taken a disturbing turn for Italy’s elites. Police took off their helmets in sympathy at the latest mass demo in Turin.
Where this is going is anybody’s guess. Citigroup says Italy will remain stuck in depression with growth of 0.1pc in 2014, zero again in 2015, and 0.2pc in 2016. If so, Italy’s output will be 10pc below the former peak a full eight years after the crisis, a far worse performance than during the Great Depression.
Even if the eurozone recovers over the next three years or so, the best that Italy can hope for is stabilisation at levels of mass unemployment – 20pc if you include Italy’s extremely high level of discouraged workers (three times the EU average) who have dropped off the rolls. The question is how long society will tolerate this. None of us know the answer.
Italy has for now avoided a return to “years of lead”, the 1970s and early 1980s terrorism when Bologna’s railway station was blown up by Fascists and former premier Aldo Moro was seized and murdered by the Red Brigades. But it is not as far away from such violence as people think. The head of the tax agency Equitalia was nearly blinded by an anarchist letter bomb in 2011. There have been repeated instances of fire bomb attacks since then.
My guess is that there will be an incident at some point – rather like the clash between French troops and dockers in Brest in 1935, when a worker was beaten to death with a rifle butt, setting in motion events that ultimately forced Laval out of power and France off the Gold Standard.
To those who keep insisting that Italy should tighten its belt and claw back competitiveness by cutting wages, I would contend that this is mathematically impossible in a climate of EMU-wide deflation or near deflation.
Full article: Italy’s president fears violent insurrection in 2014 but offers no remedy (The Telegraph)